HCI takes a profit plunge from heavy oil and exploration equity losses

HCI invested companies. SUPPLIED.

HCI invested companies. SUPPLIED.

Published May 27, 2024


Full year profits in Hosken Consolidated Investments (HCI) for the period to end March, slumped to R745.6 million after the company suffered equity losses from its oil and gas prospecting investments.

With investments in Tsogo Sun, Southern Sun, Platinum Group Metals and Frontier Transport Holdings, HCI has also made a foray into oil and gas exploration.

However, this has dragged down its profitability from R5 billion in 2023 to R745.6m in the year under review.

“Oil and gas prospecting equity losses of R528m in respect of Impact Oil & Gas (IOG) includes an effective R483m in equity losses in respect of its investment in Africa Energy Corp (AEC),” the company said on Friday.

AEC had recognised a $135m (R2.5bn) plunge in fair value adjustments on its investment in the Block 11B/12B prospect offshore of the South African south coast.

This followed a reassessment exercise of its valuation model.

HCI also incurred R25m in equity losses from its palladium prospecting investments.

Losses emanating from this consisted mainly of “general and administrative costs and share-based payment expenses,” with only interest-related income recognised.

Although the JSE listed investment company also recorded fair value losses amounting to R5m in respect of investment properties relating to its gaming operations, the company also posted R43m in fair value gains under its investment properties.

Overall, revenues in HCI for the full year to March 2024 increased from R12.5bn to R13.3bn although it did not declare a final dividend for the period under review, with its shares trading nearly unchanged on the JSE on Friday.

HCI had preference shares and term debt amounting to R1.7bn due for redemption and repayment later this year.

“Discussions have been initiated with the company’s funders relating to the refinance of the majority of these borrowings into longer-term facilities,” said the company.

In terms of income, gaming was 2% stronger, assisted by strong growth in entrance fee, food and beverage, tenanting and rooms revenue. However, Vukani’s net gaming win decreased marginally by 1% as a result of lost income during periods of load shedding.

Earnings before interest, tax, depreciation and armotization (Ebitda) for the gaming and casino segment increased by 11% to R3.8bn while headline earnings of R880m, down 6% on prior year for the segment, were impacted by an increase of R83m in finance costs.

Trading levels for the hotels segment improved significantly compared to the prior year, buoyed by strong tourism and business travel in the Western Cape and Cape Town in particular.

Normalised revenue, adjusted for the prior-year receipt of the hotel management agreement cancellation fee of R399m from TSG, increased by 21% to R6bn.

A 23% increase in rooms, 15% rise in food and beverages and a further 15% firming in rental income contributed to this.

“Average room rates achieved during the year were also 9% higher. While average room rates achieved during the year were 27% higher than for the comparative period immediately before COVID-19, occupancy levels of 58.6% remained marginally below the 59.3% achieved in that period,” the company said.

Earnings before interest, taxes, depreciation, and amortization (Ebitda) for HCI’s transport investments increased 26% after operating cost increasingly were contained at 5%.

Revenues for the segment were 9% stronger while revenue from vehicle sales grew by R100m.

The Gallagher Estate’s convention and conferencing operations recorded an increase in revenue of R41m and and R17m respectively.

Rental income increased by 5%, with substantial gains recorded for The Point Centre in Cape Town and Whale Coast Village Mall in Hermanus.